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Friday, 23 July 2021

Size of informal economy declines globally, needs more incentives to be contained: IMF

Doaa A.Moneim , Monday 4 Nov 2019
The International Monetary Fund (IMF) headquarters (Photo: Reuters)

The size of the informal economy, according to its share of the GDP, has fallen gradually across all regions globally from 1991 to 2017, according to a recent chart published by the International Monetary Fund (IMF).

The chart shows that the regions with the highest share of informal economic activities, which is economic activity practiced outside legal frames and is not subjected to a country's tax system, from 2010 to 2017 are sub-Saharan Africa, Latin America and the Caribbean, both at 34 percent of GDP.

"The informal economy is generally associated with low productivity, poverty, high unemployment, and slower economic growth. It is also more prevalent in low-income countries because as countries develop, the easier it is for workers to transition to the formal sector. At the same time, it provides employment and income to people who would otherwise not find employment, or it supplements their income from employment in the formal, regulated sector," according to the chart's analysis.

"People and companies engaged in the informal economy usually operate on a small scale. This means there are no official statistics on the informal or shadow economy, as it’s sometimes called, so economists need to estimate its size. Some common techniques include surveys or indirect indicators such as the demand for currency."

The IMF said that this situation poses a challenge to policymakers regarding creating an environment where the formal sector can thrive while creating opportunities for people working in the informal sector to maintain or improve their living standards through reducing the costs of doing business, tackling corruption, and improving access to finance and services. 

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